On the Environment

There are many valuable lessons to be drawn from the Regional Greenhouse Gas Initiative (RGGI), the nation's only operational, and mandatory, cap-and-trade program. One worth dwelling on is the effectiveness of RGGI's CO2 emissions cap. Recent analysis suggests this cap is much too forgiving -- not just now, but, more importantly, also over the next two decades.

The whole point of the RGGI emissions cap is to create a market for CO2 emissions from power plants that will ultimately drive down those emissions over time in the most economically efficient way possible. A relatively harder cap - one set below actual CO2 emissions, for example - should make RGGI's tradeable CO2 pollution allowances more scarce and thus more valuable to polluters, resulting in higher prices per allowance than a cap set above actual emissions would. The key idea here is that RGGI's cap on CO2 emissions from its regulated entities - electric utilities basically - creates a new market that has the potential to push those utilities towards low- or no-carbon generation. Where policy makers set the cap can therefore matter a great deal; a relatively tough one pushes harder than a relatively lenient one. This chart, produced on behalf of RGGI, strongly suggests the RGGI cap is not hard enough now, nor will it be hard enough in the future:

The important lines to look at for our purposes are the dashed one - that's the RGGI cap as set by agreement of the RGGI members - and the solid black line - that's both historical and projected total CO2 emissions from RGGI's regulated entities. You can see that presently, the cap is simply way too high (and to be fair, some of that is on purpose). The factors behind the recent massive drop in actual CO2 emissions are several (more on that later). The recession undoubtedly plays a huge part. Nevertheless, the cap just does not appear to be exerting real pressure on utilities right now. Maybe that's not a problem. There's an argument that a soft cap is just fine early on, as we refine and tweak RGGI. That argument might be even stronger in the current economic climate. No need to clamp down on utilities in the midst of the recession.

So perhaps the short-term performance issues of the cap are okay to put aside for the moment. That's not at all true for the long-term performance issues. Here's the major problem, and one policy makers should make an urgent focus of their thinking: According to these projections, the cap doesn't appear to really bite until maybe 2030 or later, and that's just too late in the scheme of things. Climate science tells us we need meaningful CO2 reductions much much sooner than that to avoid catastrophic harms. So what's the point of an emissions cap if it doesn't drive change when we need it? It's time to give serious thought to how best to tighten the RGGI cap to make it better correspond with the scientific reality we find ourselves in.